The Racial Wealth Divide Revisited

Income inequality between whites and blacks is widely known. It’s a serious problem and I would not want to understate it. However, wealth inequality is an even greater problem. Let’s have a quick refresher: Income is what you make and spend, wealth what you own and what appreciates in value over time. A home is the best example of wealth there is. For most people, it is the single biggest wealth-building asset they'll ever have.

Income inequality between whites and blacks is not quite 2:1; wealth inequality is 10:1, and if you factor out homeownership, it balloons to more than 100:1.

The racial wealth gap is an important topic in Bread for the World Institute’s work on asset building, and I’ve blogged about this before. I’m revisiting it now because of a recent article that appeared on the Economic Policy Institute’s website as part of its economic “snapshot” series.

“The Drive for Economic Equality…Stuck in Neutral” by Christian Dorsey and James Lin ponders where we are forty years after Dr. Martin Luther King’s death in achieving "[King's] vision of economic equality.”

In 2004, blacks held $11,800 in net worth, or about 10% of the $118,300 held by whites (see Chart). When home equity is subtracted, blacks held, at the median, only $300 in net financial assets, or less than 1% of the $36,100 held by whites. Contrary to conventional wisdom, the picture has not improved in recent years. The wealth gap was narrowest in 1992, and even then, median total wealth for blacks was a mere 16% of their white counterparts.

This is a depressing graph, and I'm afraid future ones are not likely to look better any time soon. In the coming years, I expect the racial wealth gap to widen still more because of the bust in the subprime housing market. We don't know much of the details now because the full effects of the subprime debacle won’t be in for a couple of years. What we do know is that blacks (and Hispanics) were targeted by subprime lenders at far higher rates than whites were, and we also know from other work we've done at Bread for the World Institute how much subprime lending there is in poor communities.

Subprime mortgages, once touted as a way to increase minority homeownership, and thereby increase minority wealth, will probably strip more wealth from minority families than what anybody can imagine at this point. One can only imagine what Dr. King would say.